Buying a short sale.

The downturn in the housing market has created great opportunities for homebuyers.  You can now buy a home that is under the current market value.  The questions are should you and what are some things to watch out for.  In the current market, prices are 40-50% lower than what they were selling for at the peak in early 2005.  On top of that there is also a huge amount of foreclosed and short sale properties available. 

A short sale is basically an agreement between the mortgage lender and a homeowner who is facing foreclosure.  It is sometimes referred to as a pre-foreclosure.  In a short sale, the borrower will sell their home for less than they owe and the lender will agree to accept that amount as payment in full.  It is usually a win-win for both the lender and the borrower.  The lender will not have to take possession of the home, maintain it and accrue the costs of trying to sell it (they usually will get more money from a short sale then a foreclosed property).  The borrower will be able to get out of their mortgage obligation with less damage to their credit history. 

Be especially careful when buying a foreclosure property in Florida.  In many cases, the property has sat vacant without air conditioning and may have mold issues.  Many foreclosed homes have been vandalized or the previous owner has removed everything they could from the home.  Due to the lack of maintenance, these homes can have very costly pool repairs, landscaping issues, or pest infestation.  A home inspection may not pick up all of the underlying issues. 

When buying a short sale, the home is usually still maintained and often the owner is still occupying the property.  You will still need to be very careful with the inspection because the home will be sold as is since the owner has no money to put toward repairs.  Buying a short sale can be a very frustrating process and patience is needed. 

In some cases, the listing price is really a teaser and far below what the bank will accept.  This is done to attract potential buyers and the start the negotiation at that price.  In some cases, they will set a date for bids on the properties so they can drive the price up with a bidding war. 

When you submit an offer for a short sale, you may be doing so blindly.  You can end up waiting months  without hearing any decision or updates on whether or not the bank is considering it, you may not even know if there are multiple offers, some higher than yours.  This can be frustrating and you may miss out on another property that may be a better deal. 

Another item to watch out for in the Florida real estate market is that many of the condominium communities have a high percentage of foreclosures and short sales.  These properties are toxic in that lenders will not approve mortgages in those communities.  Also in many communities the association dues have not been paid by a large number of the owners and this can lead to amenities being closed, the grounds not being maintained and large assessments.